In a San Diego 1031 Exchange, what does the word “exchange” really mean?

Most of us think of an exchange as a trade between two parties. School kids exchange an apple for an orange at lunch, new acquaintances exchange business cards, or a shopper returns an item to a store in exchange for a different item.

All of these exchanges involve another person or entity. And when exchanges were first introduced into the tax code, they did involve two parties who wished to “trade” properties.

All that changed in 1967 with the Starker lawsuits. (See: History of the 1031 Exchange.)

Today a 1031 Exchange involves one taxpayer who wishes to exchange his or her interest in one property for interest in another property.

What kind of San Diego real estate is eligible for a 1031 exchange?

1031 Exchanges deal primarily with 2 or the 5 classes of property:

  • Property used in the taxpayer’s trade or business.
  • Property held for investment.

In some instances a third class, vacation homes, may fall under the 1031 guidelines. Ask your tax advisor if your vacation home will qualify.

What are the other classes of property? Property held for sale to customers and property used as a taxpayer’s principal residence.

Want to know more?

Call 619-929-1413 and speak with one of our San Diego real estate investment specialists

Note* The 1031 Exchange information on this site is meant as an overview and is not to be taken as tax advice. To determine how a 1031 Exchange would affect you, please consult your tax advisor and/or your tax attorney.